N.Y. State Finance Law § 56: Call provision in state bonds; refunding state bonds

§ 56. Call provision in state bonds; refunding state bonds. 1.

Whenever in the comptroller's opinion it is to the advantage of the

state the comptroller when issuing and selling any bonds of the state

may reserve to the state on such conditions as the comptroller may deem

advisable and proper the privilege of refunding or of redeeming all or

any part of such bonds prior to the date on which they shall be due and

payable.

2. Whenever the comptroller shall have reserved to the state the right

to redeem or refund state bonds pursuant to subdivision one of this

section, he shall be authorized to issue refunding bonds in accordance

with the provisions of this subdivision. Such bonds may be issued prior

to the first date on which he shall have reserved the right to refund or

redeem the bonds to be refunded.

(a) Refunding bonds shall be issued only when the comptroller shall

have certified that, as a result of the refunding, there will be a debt

service savings to the state on a present value basis as a result of the

refunding transaction and that either (i) the refunding will benefit

state taxpayers over the life of the refunding bonds by achieving an

actual debt service savings each year or state fiscal year during the

term to maturity of the refunding bonds when debt service on the

refunding bonds is expected to be paid from legislative appropriations

or (ii) debt service on the refunding bonds shall be payable in annual

installments of principal and interest which result in substantially

level or declining debt service payments pursuant to paragraph (b) of

subdivision two of section fifty-seven of this article. Such

certification by the comptroller shall be conclusive as to matters

contained therein after the refunding bonds have been issued.

For purposes of determining whether there is a debt service savings on

a present value basis the present value of the total payments of both

principal and interest to become due on the refunding bonds, after

deducting any accrued interest or premium received by the state and not

used to pay the principal of or interest on the bonds to be refunded or

costs of issuance of the refunding bonds, excluding all such principal

and interest payments to be made from income received as a result of the

investment of the proceeds from the sale of the refunding bonds, shall

be less than the present value of the principal and interest payments to

become due at their stated maturities on the principal amount of bonds

to be refunded which are outstanding as of the date of the issue of the

refunding bonds after deducting therefrom all costs and expenses

incidental to the issuance of the refunding bonds, including the

development of the refunding plan, and of executing and performing the

terms and conditions of the escrow contract and all fees and charges of

the escrow holder, but only to the extent such costs and expenses are

not paid from the proceeds of the refunding bonds. The present value of

debt service payments pursuant to the foregoing provisions of this

subdivision shall be computed by discounting the principal and interest

payments on both the refunding bonds and the bonds to be refunded from

the respective maturities thereof to the date of issue of the refunding

bonds at a rate equal to the effective interest cost of the refunding

bonds. The effective interest cost of the refunding bonds shall be that

rate which is arrived at by doubling the semi-annual interest rate

(compounded semi-annually) necessary to discount the debt service

payments on the refunding bonds from the maturity dates thereof to the

date of issue of the refunding bonds and to the bona fide initial public

offering price including estimated accrued interest, or, if there is no

public offering, to the price bid including estimated accrued interest.

(b) The proceeds of refunding bonds, including any premium received on

the sale thereof, and any amounts that may be appropriated by the

legislature for the purposes thereof, shall be deposited directly in an

escrow fund created pursuant to this section, and amounts in such escrow

fund, and income earned thereon, shall be used only (i) to redeem the

bonds to be refunded, (ii) to pay debt service on the refunding bonds or

on the bonds to be refunded, (iii) to pay the costs of administering

such fund, (iv) to pay any direct or indirect costs of issuing the

refunding bonds and (v) to make any other payments required to be made

with respect to the refunding transaction.

(c) Amounts deposited in each escrow fund, with the income earned

thereon, when invested as directed by this subdivision, shall be

sufficient to pay (i) all costs of issuance of the refunding bonds, (ii)

all debt service on the refunding bonds or on the bonds to be refunded

until and including the date that the bonds to be refunded are to be

redeemed, except, at the option of the state comptroller, debt service

scheduled to be paid from appropriations in effect on the date of

issuance of the refunding bonds, (iii) all costs of administering the

escrow fund, if any, (iv) the principal of and any premium due on the

bonds to be refunded on the date they are to be redeemed, and (v) any

other payments required to be made in connection with the refunding

transaction.

(d) The comptroller is authorized to establish an escrow fund in

connection with each issue of refunding bonds that he may sell from time

to time, and he shall hold such funds outside the state treasury for the

purposes enumerated in this section.

(e) All money in each escrow fund shall be held as cash or shall be

invested in direct obligations of the federal government, direct

obligations the principal and interest of which are guaranteed by the

federal government, or obligations the interest on which is exempt from

federal income taxation and which are fully secured by direct

obligations of the federal government, having such maturities and

interest payment dates as required to make all payments to be made from

the escrow fund as they come due. The earnings on such obligations shall

remain in the escrow fund until required to be used to pay debt service

on the refunding bonds, to pay debt service on the bonds to be refunded

or to make other payments authorized to be made from the escrow fund.

Any money or investments remaining in any escrow fund after all refunded

bonds are redeemed and after all expenses related to the refunding

transaction have been paid shall be deposited in the general fund.

(f) No appropriation shall be required for disbursement of moneys from

any escrow fund created pursuant to this section, or the earnings

thereon, for the purposes enumerated above, and the comptroller may

covenant, on behalf of the state, with holders of the refunding bonds

and the bonds to be refunded that such disbursements will be made. The

comptroller is also authorized to enter into such other agreements with

other persons as he deems necessary or appropriate in connection with

any refunding transaction.

(g) Any refunding bonds issued pursuant to this section shall be paid

in annual installments which shall, so long as any refunding bonds are

outstanding, be made in each year or state fiscal year in which

installments were due on the bonds to be refunded and shall be in an

amount which shall result in annual debt service payments which shall be

less in each year or state fiscal year than the annual debt service

payments on the bonds to be refunded unless debt service on the

refunding bonds is payable in annual installments of principal and

interest which will result in substantially level or declining debt

service payments pursuant to paragraph (b) of subdivision two of section

fifty-seven of this article.

3. The state comptroller shall have custody of the securities and

other assets in the escrow funds created pursuant to this section;

provided, however, that, subject to the rights of the owners of the

bonds, the state comptroller may contract with a bank or trust company

for the maintenance, management and custody of the escrow funds. Such

bank or trust company shall have an office and be authorized to do

business in the state and shall maintain a combined capital and surplus

of not less than seventy-five million dollars.

4. Except where inconsistent with the provisions of this section, the

provisions of section fifty-seven of this chapter governing the original

issuance of debt shall apply to the sale of refunding debt pursuant to

this section.

5. Notwithstanding any other law, rule or regulation to the contrary,

within thirty days of the delivery of any fixed rate, fixed term state

obligations issued pursuant to sections fifty-five and fifty-seven of

this article, the state comptroller shall determine and certify to the

director of the budget, the chairs of the senate finance committee and

the assembly ways and means committee, the allowable bond yield on such

obligations as such allowable bond yield is determined pursuant to the

provisions of the internal revenue code of 1986, as amended. With

respect to any short-term series notes, flexible notes, or other notes

on which interest rates may vary from time to time, the state

comptroller shall determine and certify to the director of the budget

and the chairs of the senate finance committee and the assembly ways and

means committee as soon as is practicable after the maturity of such

notes on any state obligations issued pursuant to section fifty-five of

this article the allowable bond yield on such obligations as such

allowable bond yield is determined pursuant to the provisions of the

internal revenue code of 1986, as amended. Prior to making of a payment

of any rebate to the federal government, the state comptroller shall

certify to the director of the budget and the chairs of the senate

finance committee and the assembly ways and means committee the amount

of the rebate required to be paid and the date prior to which such

rebate must be paid in order to maintain the exemption from federal

income taxation of the interest paid on the obligations for which the

rebates are being made.

6. Notwithstanding any other law, rule or regulation to the contrary,

no monies shall be expended for the purpose of redeeming serial bonds to

maintain the exemption from federal taxation of the interest paid to

holders of state obligations issued pursuant to sections fifty-five and

fifty-seven of this article, issued by the state of New York until the

state comptroller has certified to the director of the budget and the

chairs of the senate finance committee and the assembly ways and means

committee their determination, the amount of such bonds to be redeemed

and the date upon which such bonds are to be redeemed.